Wednesday, 18 July 2012

Another day, another banking scandal

The stories are coming thick and fast. Here is the latest from the FT:

The Securities and Exchange Commission sued Brian Stoker, a former director in Citigroup’s structured credit products group, last year alleging that he misled investors in a $1bn collateralised debt obligation called Class V Funding III, which was comprised of securities tied to home mortgages.

The SEC alleges that he was negligent by failing to tell buyers that Citigroup had selected some of the assets and placed a $500m bet against them. The SEC is seeking disgorgement of profits and penalties from Mr Stoker. Unless a settlement is reached, jury selection is to begin Monday.

Mr Stoker is one of four individuals the SEC has charged with misleading buyers of CDOs and the first to go to trial. Citigroup agreed to pay $285m, without admitting or denying wrongdoing, to settle the case, but the judge has not approved the pact.

It is the numbers that get me.It is never $100,000 or even a million. These guys work in billions, and if they are playing it for laughs, they are running scams of a few hundred millions.

There is another interesting aspect about these cases. The pattern is always the same. Once caught, the bank in question denies any wrong doing, while the authorities settle for a cash settlement rather than go for a prosecution.

Getting caught doesn't really amount to much. No one gets jail time. Very few bankers ever lose their jobs. If the bank does something unethical, then its tough luck. They open the cheque book, write out a fine, say sorry and move on.

It is an arrangement that doesn't offer much in terms of deterring bad behaviour.